While Russ would be wary of seeking income at all costs and ignoring valuations, there’s one “bond-like” equity market segment that he believes is worth pursuing: International and global dividend stocks.
During the 25 years prior to 2009, investment income was ridiculously easy to come by. Doing something as simple as buying a 3-month Treasury bill produced an average yield of nearly 5%. That all changed, however, in late 2008, when yields dropped.
Since then, investors looking for income have had to become more creative, and many have looked to equities for income.
Market Realist – The chart above shows annual yields from three-month Treasuries (SHY) over the past 20 years. You can see that yields fell sharply from 4.85% in 2006 to 0.06% in 2013. The drastic change came in 2008. In response to the sub-prime crisis, the Federal Reserve drastically slashed rates to provide much-needed stimulus to the economy.
- The current Fed funds rate is fixed between 0% and 0.25%. Short-term bond ETFs like the iShares 1–3 Year Credit Bond ETF (CSJ) have been giving low yields too. CSJ’s year-to-date returns are only 0.30%.
- Long-term government bonds are giving better returns. The iShares 7–10 Year Treasury Bond ETF (IEF) gave returns of 4.88% year-to-date, while the iShares 20+ Year Treasury Bond ETF (TLT) gave returns of 13.31% this year.
- Low yields have forced investors to look beyond Treasuries to U.S. equities (IVV) and riskier corporate bonds (HYG).
Read on to the next part of this series to learn more about how investors are searching for different investment avenues.